tv Options Action CNBC July 12, 2009 6:00am-6:29am EDT
welco to "options action yo front row seat to the smart money. am melissa lee. here is where the actions tonight. bank on it. which one of these stockwi have the biggest move on earnings. we'll give you t setup? gaga for gooe. the searc engine grabs the headlines this week. th the smart money watchin big blue on earngs, we will tell you w. and called out. >> want to buy the july 11th put spread. >> not everyrade works out, but could redemption be the pa of dan's hands? options action" begins rig now. >> welcome to thshow. these are the opti actio traders re on the desk and across the nation.
in chicago, the ty of brotherly love, philadelphiaa bearish ill taking hold of stocks as summer is heatinup the s&p 500 sting its fourth we of losses and the lowest level since may 1st, does this smt money mean a rocky earnings season ahead? d the market moment of truth, finally here, confirmation of oumassive rally begins on tuesday when goldman sachs releases results. so far, investors nt out of financials. the xlf is down 3% for the wk. curiouslenough, though, options traders,he group that called the sector's rally, expectg too much action next week. take a look at this. current price for goldman sachs andjpmorgan chase smaller move than we he typically seen ithis unprecedenteyear. is armagedoff the table? >> not entirely. one of the things we saw this week, and toward the end othe weekbuying in the form of a put spread, someone paid 67 centfor 157,000 of those. we saw tecicals buying. si stocks, wells fargo, one
things i would highlight, this is protection, iis not a bet on a violent move. i k what we are seeing is this is an expection that the moving is already takenplace. we'rno expecting a whole lot of volatility here. >> i would say a lot of the nas that you had on the board are down 10%, 15%, 20 the last mon. me expectations have been dampened in the whate have seen in the last mth or so. one of t things i would say out the implied moves we're seeing, all being miine digits or so, listen, have gotten kind of comfortable. the armageddonay be off the table re, but there is opportunities buy cheap protecti iyou want to be able to eep better at night against your long division. >> stacy, how do you intet is it is interesting that dan points out the implie moves on all ese names are about the same. these are very, very different stocks a behave differently. >> i woulday, i don't think we can mfortably sit here and say armageddon is off the table at all. in any sector.
e ing that keep it on the table,s it going to happen tomorrow? absolutely not. that not what is being priced at. i would say ike's point, looking at some of t individual names, wellfargo, bank of america, bb & t, we w aggrsive put buying. if aageddon happens, someone's got protection for it. on the flip side of thatmi mentioned e xlf trade where we saw protective september puts r trading. we did see shorter datingsin the ly call-buying, taking a shot. i don't look at it as bullis earnings will be gat and we are looking for an upside. ifnything, i think the markets are somewhat med. we have seen a lot of mos, we are not ing to see that much. although, onof the things i would stresss that it's a low probability th we will see any tse big types of moves. high probability event is not a evt. >> how do you interpret this scott?
as earnings asons es on. goldman sas out of gate, the implied moves on the stocks change as time goes on . >> we might. goldman sachs is an outlier. and a t of the otr nancial nameare rejects from the chdren's petting zoo. but stacy makes a greapoint. option traders never take the idea of armageddon off t table completely. as soon asou do, it happens is you get your heahandedo you.d protective put buying and lot ofhe fincials has been andotal. earnings don't happen in a vacuum. earlr, when things were much better, but the overal terror was bad. we had aot of preannouncements whe people were saying, hey, our earnings for theirst quarter will be okay. if we were set up for big disappointments, we wod have seen me active management of expectations. really haven't seen that. so the put buyinis anecdotal. itpeople wanting to protect their positions. >> i wou mention that goldman sachs has started off on tuesda i thi goldman has a eat quarter and gives a great
ouook. i don't thk it will be the rt of thing that propels the entire secto i think like scott said, gdman is considered an olier. the one thinthat can turn the ctor to the down side would be an outlook for the sond half of ther by goldman sachs a bit less than expectatn. >> i am not sure i wil -- credit losses re going to be dismal the second half, th -- could change the conveation. '. >> that would be abo three months fa point inar mah where the o had very different comments about cdit. >> let's not go eper into bank of america. you ha a trade there. >>e's one, they report next friday on expirati. here is a compy that traded as low as $3 this year almostnd as high as almost $15. it settled back in he below $12. as i look out to nexweek's earnings, this company has not said word any what the business looks like inhe last couple of months.
one of the things that iant to do, these gu priced a he condary ofri, 1.25 billion shar on may 9 at 10.77. i looked out and saw the july 11 if you bought that stock o the offering and it went up to $15 and then back down and you didn't sl ny, you may want to think about protecting that stock. intestingly enough, you buy at 25 cent put, and in july, you are otted at that level of $10.77. to me, ts is that protection wn. 10%, dollar chp if you own that stock. >> mike, whadoou think? >> i agree. generally, i don't like to buy short-ted opt going in to these types of events. 25 cts if you own this thing, this is a stock that mov around a bit, yoprobably should b that. >> and thiis a sector that will it be on everybods radar. technologythe best performing group this year.
techflon rally coming an d whenay weathers like google, m report. stacy, wh market forecasting based on earnings? >> if you look at the qqq opon it will give you an idea of tax sentimt. 33, that is protecting some of the tech earngs here. struggle when i am tryg find individual names. microsoft, cisco. ere's some bullish tradingut there. but i feel le i'm stretching. tech is one of those nam that has been a quiet ris here. nobody is potioning for much. look to google, the average move around quarters s been around 5% ibm, close t6%. look to intel. average moves closer to 3 %. not pricing in mh more than that in geral, i would say it resembles the financiasector. there is n a huge expected ve out there.
it is slightly differentn the sense that i don't see theame proactive put buyinghat i did in the actual stks. >> this maybe good news, if we are a glassalfull mood? >> a lot of the names are cycle names, in the last 18 months or so, look at intel, ibm, what they will say for their tlks, intel's ceo mentione on the last earnings rort th pc market has bottled. its down on the year. is one of those things that under pems. i not sure that the option market, even investorsre taking what they have to say at face value. >> how do you re the tea leaves, scot >> ibm and intel, the portant onesin the financials, and google ithe seetariat of the space. they're the outlier. we can't pay so much aention to the exptation for a move in google, 7%. intel and ibm, the fact at expectations of the move fm ; earngs are muted. it is probably good. they are likely to leaus out the space. intel has gotten supplchain
problems figur out. people drawi down chip inventies, buying a lot from intel, was a problem earer in the cycle. it seems to ha gone away. those companies, well, we n't expect a big move om them at least,hat is good. they are going to lead us out the doldrums. sboel got the supply chain problems gud o. drawing down chip invenries was a problem for the company early in the cycle. those companies- well, we don't expect a big moverom them as far as what the options are saying. that's good. they're going to leaus out of the dollrums. >> goldman shsaying they expect a rovery in hardware. they like thhigherrowth names. you got a tre on ibm. what is it? how does it protect you? >> quick corction here, first e qs were august, n july. going into earnings,f i own stock, and i participated in is rally, sticking to the i swear forthe lasthree
months. i like t collars. for the last three months, i like theallers. i'm loing at the july 95 put, off 70 cents, i am cheapwant to financet. the offer out at july strike 60 cents bi net-neuying this protection. buying down 5% get called away roughl up 5%. m paying a dime for it. one thi want to stress about m, the last five years, two quarters tt ibm moved more than 5%. looking at january of '09 up over 11%. have to go back to apr of '05 wherit was down 8%. i don't expect this trto work out. which is fine. you don't expect it to work out. what are you talki about? i think it is going to wk out. i will defend yourde maybe morehayou are. the ason is, what did news are we going to see that is actually going to drive thistock a lot gher? i don't see a lot the horizon.
the volale stks, not suggesng we'll see huge moves. the certainly, volatility basis, not suggesting we'll see b moves in either direction. if we are going to s anything if the enomic news we are eing will be any indication, that news cod be negative, the t buyers are doing the rig thing. you are doing the right thing. like the trade. i like the trade, it ia smar trade at ibm. >> coming to your defense, stac. >> iike it. i do. >> moving on. >> that is pat benatar, n' it, dan? >> it can an one or two thin. we're living an '80s ti warp -- hair is not big enough. it has to be time for everyone's favorite segment, put upr shut up wre dan and mike agree on the direction of atock, but hit each other with their be shots ertrategy. the la time they tangled it was a draw. they both call apollo earngs, tougher test gets under way next fday when general electric releas its results. mike, you get the firsshot. >> all right i was going copt the theme we've been talking about here. which is the first thing we're talking abouis the face're not expecting a whole lot to
come out of earnings. the play isn't necessary i won't y out a buchbl of premiums bettinto win. however, we could recognize we could see new data points out of ge and some of the other earnings we're going to s. i'm lking to sellhe august 9-10 put spread for 20 cents and buy t of the august 13 calls paying a dime for this thing. depending on the stock, the prices mht not line up. the idea here is that i'm not going to los anything if the stock goes down 7%. if it makes aharp upward move, i'm not going to accept that. i'm buying the put because if there's the new dat point, i need protect >> ding, ding. let me tellou somethg. the only guy or gal -- i don't know -- >> maybe. >> we'll see. >> the only guys or galat may winthis is his broker. he was keeps suggesting the
four-legged trades at's brilliant. >> t three-legged ade. >> you're buying two of the upside calls, right? >> tee difrent -- >> all right, dan, you're -- >> wt i want to do here, i'm not focused on earnings. here's a stock that's bid between 6 a 15 here in the last few monthhere. it has not found a home y. there's a lot different business uni, a lot of differt parts. and wall street has their hands fulln trying to get theirrms nd and it focusing o with a the tlook will be for the same. going for it, the potenti to volile. it hasn't found a home yet. 6% -- sowhat, it moves on average. buy the august 11, 10-11 strale i want to brk even. upside is $12.50 on t site and $885 on the downside. i want to usee as a proxy r what could happen in the mart if we're an inflectionpoint at may cause, you now, the -- may cause market to g one
way or the other. d i thk ge will clearly participate one way or the other if that happens. >> i don't want to impart a bias, t strangles are lower probability tres. what do you think >> i like n's thesis here. i have to notecse i'm defending my training, i have to go wh mike on this. here's why. i like mike -- let me tell y why --ou don't have toay anythi up front. i like that. you have a dollar of risk. >> send me a questio send me an e-mail. firstname.lastname@example.org. not every trade is a winner. e of our less successful ones on tom after this break. time for "pumpup the volume." the names are heating upptions trads sizzle index this we. 1910 enlist on the stock exange in 36. it's the large power tool maker in the u. bringing to market the electric lawnmower, the dus buster and
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or go to our website. i'll see you at 3:00! announcer: captioned telephone - enjoy the phone again! activity? it's agrgrea e empmplef what can happen oa a qut day, as you said, ten t tim o or the avereragcacall volume trarade today. i put high p pbability th's's sething happen next weekend. the kpen issxpxpecd to report eaearngsgsuly 24. second month, oo months agago,t was danehur rumored tobuy them.. slslhthtlyfter they cut theirir dividends. itit'seeeethere. ii inink 's interesting to see the trade trading. i don't ththk k it happening is ekend. >titimeo get you called on updating the loser trtre. winners arargat. it's t t second ones that can ne a better trader. pain, nono gain. some of dan'sfafansalling for a papalmg violation.
just bececau you're spendingg ssss to makeorore doesn't mean you'll always come o outhehead lolo no furtheher than dan's p put spads. >> i ianant buy tululy 11ut reads in papalm >> tradersrsuyuy p spreadad th'r'r mamaki a bearirishththat the ststocwiwillo lower byy bubung one putt a sling a same put ainst the se expirationon aininst it. byelelng the lower strtree put, you reduced the e co o of e trade ananlilited your gains on the difference betetwe the p you bougug a and the one y you . hehe tught it was overhyped a a eetock had g gon too far t fa.. but a simple bearish b b wasn't s s strategy. >> i wouldn't shoho your stock with his money. >> heboboht t p p spread paying $1.10 buy eeuly 11 stke put and collectctin 3 cents t b buyhehe jy 8 strike puput. he netted 80 ctsts tmake a
$2$20.0. mips the cosost of t ade. but in ordrdero o ke it $2020, he needed palm's stotocko o ll to $8. >> y have a a situationwhwher th company has pinned all o of eeope for survivalonon one product. > iprprident obama has taugug us anything, , it's ththat he ia popoweululorce. >> y yeswewe c. > ncnce danan made h his mo lmlm stock raieie andd made his tradehopeless. as palm's stock rises, the vue ofhe put s sead he bought, fafas. with thehe pa trade o out of h hands, he s shod lose his head.. with expiration lesess than a wk away, time is workininagagait him.m. hearts broken, optptio actions fans around the wororld are lef towonder, what will dan d do n? i dodon'wawa to keep the legegns of fanss waitingng b wanto ma a a point autut education and the aananta ofoptions. had you shorord d palm'sstocks,
yowould be l loong at thehe ggggerloloss for the $8080 so rr t theut spread.. what does itit s about t the exraraon on frd.d. >> with a alal the momove it's wowohlhles sorry, you losostouou money. i dottake it lighthtly this ishehe most serious tngng we can do investitingnnhe market. i was very clear that i w woun't short the tock. ii wouldn't shortrthe stock he, evev up % or s so from the lelel that i suggegest b buyg this put spread. at id, the thesis hadn't changed d onbit. i'm more negative. the company released earnings. won't say a wordbobouthenits of thehe pm m prix devicehehe soldld i've p pladdith iit. itit'sot a greatphone. it's not any sosort o o kochigi toto ape.e. look a athat apple did -- soldd1 million iphones orr the weekend and the rsrs thinghehey did moay morning wasnnounced .. what are theseeguys hiding.
i want to b b t t november putspreads. pay $1$1.7 r that w whh max potential l inin of $330. two timesy ney. i bebeeveveery strongly this fense is going to playayutut. be persistenttinhehe markeket a hope w w't't make youou ney consistently in the market. >> what do you sa i'm completetewith dan. palm i is t t thirdlayer in t ti ace, and that's nott the place be inin i wondeder ifhihiss not dan's grgreawhite whale. maybe we picic o ourlvlv up, wak ofanand ve ay. >> the losses were cut. y yea >>hink you c definitely t t ught into a l lit bitofof a ap ifouou continually try to throw premium a at trtre idea. anand e e of the grere things tt can be a trap is over time yoyo put momore and moreremium in to it, you start to goo the other way, y youe digginin yourself a bihoholehat you h hav to makee more moneyey t g out of. >ords of caution. got a question?? send us s an eail.
time now for the fal call. the last wd from the optio pit. stacy, kick itoff. know what you have and have a plan. >> szott? >> i like ge'strength. i can ow that from no >> i like buyin that bank of amica july 11 put that expires on expiration on the day they rert earnin for 25 cents. >> mike? >> i'm goi t go with the b.a.c. put buy. looks like our me has expired for ptns action." r thanks to the trader. i' melissa lee. we'll see you bachere next week. have a great week, evebody.